As asset liability approach (ALM) to asset allocation

Overview: All insurance and pension organizations share a common goal - to optimize the strategic asset allocation (SAA) of the fund to match the market risk profile of the liability it is backing. The reasoning behind constructing such an asset mix is to align the investment profile of the fund with the liability portfolio, thereby limiting the downside risk. Additionally, the SAA portfolio can provide guidance to portfolio managers on acceptable risk-tolerance levels.